Opinion: What To Expect From An Election Interim Budget

Though it is an election interim Budget, there are many expectations on the upcoming union Budget of Nirmala Sitharaman, which scheduled on 1st of February 2024. The expectations include in the field of agriculture, manufacturing, automobile, pharma, health care, education, and infrastructure along with some exemptions in tax. To get re-elected, normally a soaping Budget is necessary and indeed that is the will of the government. And hopefully having sufficient fund with the Central Government, they may able to do the same. Given these expectations regarding the hype in the growth of Indian economy, one has to be a little bit cautious about the narrative of development which was advanced in recent India especially in the economic front.

Let me share some of the anxieties based on the previous Budget as well as the current growth trajectory of India based on the half yearly report.

The half yearly growth report of 2023-24 was released in December, in which the economic growth has projected as 7.6%, a much better figure than projected in the Budget. The growth drive is primarily attributed to the whooping surge in automobile sale and personal loan growth. It is 25.1% and 26.2% respectively of year on year basis. On a positive note, the half yearly report claim that domestic demand has improved and as per the periodic labour force survey, private consumption has increased and unemployment rate has fallen from 7 to 6.6%.

However, it is quite surprising to note that in the same report if we consider the last 10 years of private final consumption expenditure the trend remains stagnant except the two pandemic years 2020 and 2021. Where the private final consumption expenditure has increased because of lack of sufficient public spending and people were relied on their private income. Similarly from 2012 another important indicator of any countries real economic growth, the gross fixed capital formation is continuously declined till 2021, however the post pandemic picking up is not reached up to the level of 2019 or even 2020, which means the projection of 7.6% is bettering from a very poor state which one can applaud is ironically optimistic.

Regarding the agriculture sector, although the report speaks on positive kharif season but the growth plotted seems falling in the report itself. Similarly, the last six months of purchasing managers index of both manufacturing and services in fact showing a decline but still better than post pandemic years, which logically invoke doubt on the projections of a high growth.

However, a high capital expenditure earmarked in the last Budget to infuse into the infrastructure development is a big push. The recent capital-intensive investment in the infrastructure sector obviously benefit the capitalist class, but as mentioned, the growth of gross fixed capital formation is not proportionally improving.

Though the income of the Centre is improving over a period but the Centre is unable to curtail deficit with a revenue deficit of 4.1% and fiscal deficit of 6.4% in the revised estimate, and the growth of deficit is unparalleled given the withdrawal of the Centre spending from different social and development expenditure in the past few years. Whereas state like Kerala, who has a track record of spending on development and social sector been penalised in the name of keeping robust rule based fiscal policy. Although the Centre is committed to keep the cooperative federal structure the devolution plan of the Centre gives an opposite picture.

For instance,  the plan outlay of the Centre in the committed finance commission devolution as per the constitutional guarantee is declining over the years, i.e. decline from 2.07 lakh crores in 2021-22 to 1.73 crores in the revised estimate of 2022-23 and a further cut to less than 1.65 lakh crores, which obviously strengthen the argument that Centre is weakening the federal financial structure. This needs to be rectified, hopefully the interim Budget improve devolution.

Similarly, the fund cuts in the obligatory centrally sponsored schemes reduce the federal etiquette, whereas the Centre goes on pampering the discretionary Centre Sector Scheme (CSS). The difference between both CSS is the latter caters the interest of the ruling party at the Centre where the former doesn”t. Needless to say, the expenditure in the agriculture and allied sector including PM- Kisan, commerce and industry, health, scientific departments, social welfare, transfer to state, and urban development are falling. Unless the union government addresses the issue, the criticism of federal financing is getting bulldozed in fact remains and it”s nothing but due to the discretionary practices of the current union government.

(Siddik Rabiyath is Director of Inter University Centre for Alternative Economics, and Assistant Professor at Department of Economics, University of Kerala)